Portfolio > Portfolio Construction

Basket Trading Gains Ground

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GREENWICH, Conn. (–Portfolio trades accounted for 40% of share trading volume among institutional investors, including hedge funds, according to a recent survey by Greenwich Associates.

The survey also shows that portfolio managers and traders using portfolio trading got only a minor increase in compensation in 2002.

Portfolio trading, or the trading of baskets of shares of 15 or more stocks by a definition Greenwich and others use, is on the upswing as a means to reduce trading costs in an investment environment that has been more cut-throat, said Melissa De Vries, a market analyst for Greenwich. Greenwich executives note that portfolio trading costs usually come in at between 2.2 cents a share to 2.5 cents a share, about half the cost of U.S. agency trades.

The technique also is gaining ground with U.S. investors trading international shares, the Greenwich survey says. The volume of portfolio trading in U.K. and European stocks by U.S. managers doubled to 16% from 9%, while the volume rose to 6% of all trading from 4% for shares in the Asia-Pacific region, in the 2003 survey.

Greenwich says that portfolio trading is becoming more efficient through the use of direct-access trading systems, which reduce cost, improve traders’ work flow and allow traders to better monitor trade execution. Direct access allows traders to get under the hood, making trades more transparent, according to Greenwich executives.

Compensation Grows

The average salary and bonus of traders in the portfolio trading survey was US$215,000 in 2002, up a bit from the average of US$205,000 the previous year. But experienced senior traders were paid on average US$260,000 in 2002, while junior traders received US$140,000.

Portfolio managers in the survey were paid salary and bonus of on average US$185,000 in 2002, up from US$175,000, Greenwich says.

The survey results were compiled from interviews with 108 institutional investors such as investment managers, quantitative funds, hedge funds and pension funds between January and March 2003.

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